Excel Calculates DDB Formula Incorrectly PSS ID Number: Q41488 Article last modified on 02-26-1993 PSS database name: W_eXceL
2.x 3.00
WINDOWS
Problem:
I am using the default Excel Double Declining Balance formula (=DDB()). When the salvage value of the asset becomes large enough, the last year of my depreciation schedule changes. Furthermore, the formula for calculating DDB shown in the Excel does not use salvage value as a parameter.
Response:
This behavior is not a problem with Excel, but a feature by design. Excel calculates the DDB using the formula shown on Page 43 of the “Microsoft Excel Functions and Macros” manual until the given salvage value becomes great enough to affect the end result of TOTAL depreciation (the sum of depreciation values for the life of the asset).
The point when the last year’s depreciation becomes affected is when salvage value is approximately equal to 10.72% of the cost of the asset. When the salvage value reaches this point, the last year’s depreciation is reduced so that the sum of the depreciation values and the salvage value equal the cost of the asset.
After the salvage value has become large enough to reduce the last year’s depreciation to zero, the second-to-last year is reduced for each additional dollar added to the salvage value parameter. This method of depreciation calculation conforms to the Generally Accepted Accounting Principles of the Financial Accounting Standards Board and is, therefore, correct.
To avoid this feature, don’t enter a value for salvage value in the DDB formula. Salvage value will then equal the sum of all depreciation values for the life of the asset minus the cost.
Copyright Microsoft Corporation 1993.
